Speeding Access to the Info Highway

Commodore Perry's Black Ships cruised to Japan at a snail's pace. Today, the Net is blazing a much speedier path, and it looks like consumers and businesses stand to gain. Net service on your cellular telephone and cheap access via the power company, here we come!

Up until less than 150 years ago, Japan was sealed off from the rest of the world, accessible to outsiders only through the cultural choke-point of Dejima, an artificial island constructed off Nagasaki in order to keep the foreigners and their pernicious influences at bay. This state of affairs ended in 1853 when Commodore Perry of the U.S. Navy and his flotilla of Black Ships forced open Japan, making it accessible to the rest of the world.

Today, the new ships of e-commerce and the Internet are likewise aiming to force open Japan's closed doors of regulations, bureaucracy, and obstructionism. But Japanese waters are not conducive to smooth sailing, and concepts that can easily negotiate the global Internet founder when they come to Japan. Indeed, this country has been accused of being slow to "get the Net," but there is a simple reason why sales of, for example, MP3 music via the Net haven't caught on: The high cost of bandwidth for the average Japanese consumer.

Talk, talk, talk
Walk down any Tokyo street and you will be struck by the high number of portable telephone users. Market penetration has reached an incredible level-over 50 million handsets sold to a population of around 120 million. Not just a toy for executives, they turn up anywhere and everywhere. One of my favorite Japanese scenes is that of my tea ceremony teacher, kneeling and talking on her portable telephone, kept in her kimono sleeve!

NTT DoCoMo (an NTT Group company; NTT is the ex-governmental, ex-monopoly telco) and DDI (a privately owned operator) intro- duced its "i-mode" online cellular services to the world earlier this year. Using a handset, it is now possible to browse micro-Web pages, send and receive e-mail, perform banking and ticket reservation transactions, and confirm equity trades, among others, all in a small package only 15 characters wide by six lines deep. Since introduction of this service, over one million subscribers have signed up for the NTT DoCoMo version alone. Of course, there are good reasons why such a service is so popular here, and one reason is the relatively compact nature of the Japanese written language. One Japanese kanji character, occupying one space on the screen, roughly equals one English word, which would take up many spaces on the screen written in Roman letters. There are good reasons why such a service is so popular here, and one of them is the Japanese love of novelty; miniaturization has to be another reason.

However, the most compelling motive for using a cellular telephone is cost! The handset can be obtained free-I paid ¥120 ($1.11) for mine, and my wife paid ¥1! The initial connection charge is a few thousand yen, and monthly rental is in proportion. Call charges are comparable to landline charges.

We're not in Kansas anymore, Toto
Now compare this with the cost of getting a telephone connection through the same NTT-still the only way of getting a telephone line for a domestic subscriber. As well as the engineering fee, a ¥70,000 ($650) nonreturnable bond must be paid, which is the subscriber's license to own a telephone line. There is also a monthly rental charge. However, what horrifies Americans (but not Europeans) is that every minute of every call, local or long-distance, is chargeable. Although other telcos now exist, allowing cheaper calls, the final mile of copper has to be owned by NTT. Thanks to pressure from the Ministry of Posts and Telecommuni-cations (MPT), NTT has come up with various schemes, which go a little way towards easing the consumer's pain. ISDN is easy and relatively cheap. Various services (all chargeable) allow calls outside the immediate local area to be treated as local calls, or five-minute calls to be charged as three-minute calls. There is also a Telehodai service (the name comes from eat- and drink-all-you-like restaurants, tabehodai and nomihodai), allowing the subscriber to place as many calls to a designated number as required-provided they're made between 11:00 p.m. and 8:00 a.m., and that a monthly fee is paid!

The home stretch
A semialternative was announced earlier this year when the MPT forced the opening up of NTT's MDF (main distribution frame), allowing a So-Net/Surigiken consortium to offer ADSL over copper, bypassing NTT exchanges. This may turn out to be an interesting solution for those who live in the areas where this service will be offered, but it still requires NTT's final mile.

How to make the end-run? Happily, NTT isn't the only company bringing wires into the home. The other major players are the electric utility companies. Note that cable TV has yet to take off to any significant extent in Japan, and the penetration compared with Europe or the U.S.A. is low-only 25% of municipalities are served by a fragmented (hundreds of operators) cable TV industry, and only 17% of households subscribe to a cable service (the U.S. figure is 66%). That's "bringing wires" rather than "laying wires," as almost all telephone and power cables in Japan are above ground, forming a demented android spider's web, complete with heavy, CFC-filled transformers, delicately poised to crash onto the heads of passers-by in the event of an earthquake.

Fiber power
Using the infrastructure provided by Tokyo Electric Power Company (Tepco), a consortium including Softbank (headed by Masayoshi Son) will be providing an Internet service (trials starting this year, full service by mid-2000) in the greater Tokyo area. This does not mean that the power lines will carry the IP packets. Instead, Tepco has been investing for over 20 years in the development of a fiber network that was designed to monitor and control the electric grid. Consequently, there are many thousands of kilometers of fiber in the Tokyo area overlaying the power line grid-overkill for this purpose. This is bandwidth going to waste.

Ding dong the witch is dead
Softbank's idea is that this private fiber network can be hooked up to the Net, and connected at the consumer end using wireless technology, with transceivers attached to the ubiquitous power poles. NTT is at last out of the picture. It is estimated that connections of about 1Mbps should be possible. The cost of service should be "between ¥2,000 and ¥5,000 per month" ($18-46); significantly less than NTT's proposed offering. When the cost per Kbps is worked out, this is claimed to be the cheapest service available in the world (Sony is also investigating similar technology, using wireless local loops).

The other player on the Tepco/Softbank team is Microsoft. Maybe significantly, this is not Microsoft Japan. My calls to the Microsoft Japan press office were answered with "this is not us," and I was referred to Redmond. The press office at Redmond was no more forthcoming, and the only English-language press release on the Microsoft website pointed to Microsoft Japan. Was this deal struck on a personal level between Softbank's Son and Microsoft's Gates, on a "Masayoshi-and-Bill"-type basis, with a lot of penciled notes, leaving many details to be inked in later?

In fact, until the three-way joint company, formed with a capitalization of ¥2.32 billion ($215 million), is well established, none of the players can provide very much information (in mid-September, the JV had only just been formed). The future business potential for all players is enormous. My guess is that the partners are still in the process of working out exactly what's in it for each of them.

What's in it for me?
First, Tepco. They have spent a lot of money achieving something very close to a former governmental goal-fiber to every door (which seems to have been conveniently forgotten as politicians realized that they didn't really know what the "multimedia age" really meant). Tepco has the satisfaction of knowing that this money was not wasted and of boosting their image as something more than a mere supplier of volts. Japanese utilities have a tradition of plowing their (large) profits back into applications of technology. For instance, there is a long-standing rivalry between the Tokyo and Osaka gas companies with regard to the development of object- oriented systems.

Next, Softbank's gains are easier to see. Softbank has rapidly been diversifying its range of e-activities. Customers hooked into this proposed network will find it easy to access the expanding Softbank empire of e-businesses. Softbank can market services that depend on the provided speed (e.g. audio-on-demand, gaming services, etc.), as well as other Internet-based consumer financial and supply services. Last, although having Bill Gates onboard lends instant respectability to any venture, and brings a whiff of the exotic, successful, foreign high-tech businessman to the party, Microsoft's benefits from this are less obvious than those of the other participants. Leaving aside the well-known propensity of Bill Gates to get involved in every aspect of the technical world, there is a PR exercise attached to all this-one which, in this case, will certainly be to the long-term benefit of Japanese society.

Free Net access
The consortium is offering free Internet access via the new network to every school in the area being served, for a guaranteed ten years. This compares very favorably with NTT's recently announced counter-offer of a service for schools at a flat fee of around ¥8,000/month ($74) based on limited access time. By the simple law of averages, Microsoft is poised to make money on the investment in computers by the schools. Not only that, but this will also breed a new generation of Japanese school graduates, raised on Microsoft products. It's a far cry from educational systems in other countries, but it's a welcome step away from the traditional rote learning usually associated with Japan. This has to be a great way of breeding a new generation of technically aware students, whose mental horizons are as wide as the Internet itself.

The Japanese people as a whole will benefit from this high-speed, low-cost access. Online catalog browsing and shopping only becomes a reality when access isn't being timed. Online banking, now in its infancy in Japan, can mature. Books and journals can be e-published about noncommercial subjects, allowing a true diversity of public opinion (we're already seeing the first rumblings of this in e-mail magazines). The music distribution business can expand. The downsides of bringing the Net to the Japanese consumer's door (loss of personal and Japanese-language skills, growth of pornography, etc.) are either minor, or easily solvable.

Who loses outright? NTT is the obvious candidate for the wooden spoon. What need is there now for a phone line in a private household? With voice communications handled by cellular and other mobile systems, and Internet access over a wireless network, the only need for a landline is fax. And even that can be achieved via the Internet, with gateways.

This is truly exciting. In many ways, freedom from the ex-state telecom company represents the first step in the independence of the Japanese people from their nanny bureaucracy. The fact that this consortium is composed of the old (a public utility company), the new (one of Japan's most aggressive high-tech entrepreneurs), and an overseas company (Microsoft) is a new way of working in Japan, which can act as a new business model for other such enterprises. Perhaps this is the last act in the opening of Japan that Commodore Perry started in 1853.